The global economy is being impacted by a number of events, curtailing the ability to conduct business as usual. Should you find your business facing immediate business cash flow issues resulting from an external economic shock, following a clear concise plan can help you manage your way through the crisis.

There are three fundamental steps (Assess, Engage, Act – AEA) to follow in navigating a cash flow issue and safeguarding the future of your business, regardless of the industry.

Kieran Wallace, Andrew O'Leary and Teresa King of our Working Capital Management team explain how to apply this framework to your business.

Assess, act and engage - 3 step framework for managing cash flow and working capital

Assess

Gaining visibility and control over cash flows and working capital is fundamental during a time of crisis.

  • Updating 13-week rolling cash flow forecasts to realistically assess your current situation. 
  • Consider working capital needs in the context of overall business requirements for the weeks ahead. 
  • Review all other non-trading contracts / commitments that have a cash requirement over the months ahead and reconsider their necessity.
  • Review trapped and illiquid cash within the group structure. Make use of treasury pooling structures, to make more effective use of available cash that may be lying idly within the group structure

Engage

Making cash management a boardroom priority and engaging with stakeholders early will help you to understand your current situation and reduce any ambiguity between parties.

  • In order of priority, detail an extensive list of stakeholders impacted by the cash flow issue, including Shareholders, Financiers, Customers, Suppliers and Employees. 
  • Make use of funding and liquidity products and engage early with finance providers to address any forecasted deficiencies 
  • Where possible seek more favourable terms from Customers and Suppliers
  • Set out an agreed action plan for each stakeholder  

Act

Delivering upon what you have agreed with Stakeholders will help to alleviate pressure and give you time manage the situation.

Regular variance analysis of actual versus forecasted cashflows should be carried out with variances robustly challenged.

Repeat & continue the AEA cycle

In the longer term, it is important to develop a cash management and working capital strategy.

Using data and analytics, cash management inefficiencies can be quickly identified. An improvement plan for the business should be developed and implemented to achieve sustainable improvements in cash balances and working capital performance.

Cash & working capital checklist

Our Working Capital Management team has designed a cash and working capital checklist to help you navigate your business through these turbulent times.

Download a PDF version here.

Cash Management

  • Ensure clear visibility of cash across all bank accounts on an organisation wide basis, broken out by currency and legal entity
  • Gain a good understanding on how quickly cash can be accessed and utilised centrally or in another part of the organisation
  • Is there any trapped cash and are there options available to release this cash
  • Consider the cashflow impact of hedging i.e. derivative realised loss

Working Capital

  • Determine the extent and timing of any cash shortfalls so that suitable responses can be planned to provide additional funds if required
  • See what payment terms can be reached with suppliers. Be mindful of their financial position & avoid jeopardising valuable relationships!
  • Consider the frequency of payment runs and how this can be optimised
  • Receivables – look at what can be done to accelerate receipts. Consider short term payment discounts to generate cash more quickly
  • Revise the inventory management strategy - Consider minimum order quantities, frequency of orders and match to stock turnover levels
  • Consider slow moving obsolete stock – can this be realised quickly to generate a cash benefit

Liquidity Planning

  • Determine the extent and timing of any cash shortfalls so that suitable responses can be planned to provide additional funds if required
  • Identify sources of risk along with the impact and likelihood of occurrence (e.g. operational cashflow or ability to access cashflow)
  • Perform a granular cashflow forecast for the short term e.g. daily for first 4 weeks and weekly beyond 4 weeks
  • An actual versus forecast analysis should be conducted daily or weekly basis (dependent on circumstances) to understand the variances
  • Conduct a regular dialogue with the internal stakeholders to understand and reflect any changes to cashflow (i.e. timing or permanent)
  • Conduct stress testing (sensitivity and scenario analysis) of short and long term forecasting and factor revenue and supply chain issues
  • Prepare contingency plans based on stress testing results
  • Promote a cash culture within the organisation to ensure there is a common “cash goal”
  • Consider non ERP/TMS cashflows and factors (capex, dividends, disposal proceeds, seasonality, new or ceased business line etc.)

Credit Availability

  • Assess what credit facilities are currently available for use and distinguish between committed and uncommitted facilities
  • Keep an open dialogue with financiers to ensure there is continued commitment to providing sufficient credit
  • Clarify the drawdown notice period for any Revolving Credit Facility (RCF) that may be in place
  • Liaise with finance providers and seek independent professional advice if there is a concern servicing current debt obligations

Other Considerations

  • Consider all COVID-19 Government supports available
  • Investigate alternative funding solutions such as supply chain financing, purchasing cards and sale and leaseback
  • Pay particular attention to current debt covenants which may result in an event of default
  • A successful cyber attack directly or indirectly can result in significant loss of cash. Remain vigilant!

Get in touch

If your business is encountering any of the cash flow or working capital issues discussed in this article, please do not hesitate to get in touch with Kieran Wallace, Andrew O'Leary or Teresa King of our Working Capital Management team. We'd be delighted to hear from you.